Talk may be cheap, but in currency traders' chatrooms, at least, improper messages can be very expensive for their companies.
In instant message groups with names such as "Semi Grumpy Old Men" and "Three Way Banana Split," up to nine foreign-exchange spot traders logged in for long conversations about their work. Those chats have now cost their employers - including Citigroup Inc., Royal Bank of Scotland Group Plc and JPMorgan Chase & Co. - some US$1.2 billion ($1.8b) in European Union cartel fines.
There may be more to come. Regulators said on Thursday they're still looking at a third chatroom cartel that could involve fines for Credit Suisse Group AG and others. Credit Suisse said it doesn't believe its employees engaged in any conduct that violated antitrust rules and that it will "vigorously contest" the allegations.
"As soon as you start talking about market-sensitive stuff with your competitors you are in risky territory," said Angus MacCulloch, a senior law lecturer at Lancaster University, England. "There is no information that is safe, arguably, to talk to your competitors about if it will affect the market. If you give information to your competitors about your future intention in the market, that is a problem."
Just being part of the two chatrooms showed a tacit agreement to collude, according to the European Commission. The traders, all men and based in London, New York and Tokyo, swapped information about the US dollar plus ten other currencies involving 55 combinations in total. This is wider than a similar US probe which didn't investigate the so-called "Essex Express" or "Semi Grumpy Old Men" group of train commuters to London that traded US dollar and yen, among other currency pairs.
The men talked about how much their clients wanted to exchange for which currency, the bid-ask spreads, their open-risk positions or how much they still needed to buy or sell. They also sometimes agreed to hold back from trading to help each other.
Investigators waded through lengthy transcripts of online conversations to pinpoint where they exchanged information. Their probe didn't go so far as proving that traders attempted to manipulate a 4 p.m. London-time WM/Reuters fix used as a market benchmark. Under EU antitrust rules, officials didn't have to. Just talking about prices or strategies was enough to make the traders fall foul of the law.
Global probes into traders' potential fixing of the foreign-exchange market kicked off after the conduct was exposed by Bloomberg News in June 2013. UBS Group AG was the first bank to rush to the European Commission in September 2013, winning immunity from fines. After the EU wrapped up its initial investigation, it started settlement talks with the banks in 2016 and sent them charges in July 2018.
"These violations take time to find and then to prove," said Pierre-Henri Conac, a professor of banking and financial law at the University of Luxembourg. "Everything depends on whether there's a whistle-blower, the number of members of the cartel and the level of involvement of the bank's top management."
Seven banks have so far paid more than US$10b in fines and face lawsuits from customers who complain they were shortchanged. But the investigations aren't clearcut: three traders at the center of the investigations argued that they didn't behave differently from other market participants at the time - and were acquitted by a New York federal jury last year.
The EU probes could have taken longer if the banks hadn't agreed to admit liability, which saw them win a reduced fine and a less detailed ruling that will hamper claims for compensation.
For the banks, the question is whether the reputational harm and the cost of litigation makes it worth settling "even if you don't think what you have done is particularly problematic," said MacCulloch.